Greetings and welcome to Gladstone Investment Corporation Fourth Quarter and Year End Earnings Conference Call. At this time all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Gladstone, Chief Executive Officer. Thank you. Please go ahead.

Well, thank you, Donna, and good morning to everybody out there who's listening to this. This is David Gladstone, Chairman of Gladstone Investment. This is the earnings conference call for the fourth quarter and fiscal year end March 31st, 2025 for shareholders and analysts of Gladstone Investment listed on NASDAQ under the trading symbol GAIN or capital gains for us for our common stock. And then we have some preferred stock GAINN and GAINZ and GAINL and GAINI. And these are the four registered notes that we have. And thank you all for calling in. We're always happy to provide updates to our shareholders and analysts and provide our views on the current business environment. Two goals for this call is to help you understand what happened and also give you some current views on what I think the future will be like. Now we hear from our General Counsel and Secretary, Michael LiCalsi. Mike?

Yes, that's right. Speaking of the future, today's call may include forward-looking statements under the Securities Act of 1933 and the Securities Exchange Act of 1934, including those regarding our future performance. These forward-looking statements involve certain risks and uncertainties, although they are based on our current plans, which we believe to be reasonable. And many factors may cause our actual results to be materially different from any future results expressed or implied by these forward-looking statements, including all the risk factors that we have in our 10-Q, 10-K and other documents we file with the SEC. You can find them all on the investors page of our website that's gladstoneinvestment.com or you can even find them on the SEC's website which is sec.gov. Now we undertake no obligation to publicly update or revise any of these forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Please also note that any past performance is never a guarantee of future results. We ask that you visit our website, once again it's gladstoneinvestment.com, sign up for email notification service while you're there. You can also find us on Twitter, keyword there is GladstoneComps and on Facebook the keyword is The Gladstone Companies. And today's call is an overview of our annual results through March 31, 2025. So please review our press release and Form 10-K for more detailed information. With that, I'll turn it over to Dave Dullum, he's the President of Gladstone Investment. Dave?

Hey, Mike, thanks very much, and good morning to everyone. We are again pleased to report that GAIN did produce very positive results for the fourth quarter and the fiscal year ended March 31, 2025. For the fiscal year we generated adjusted NII of $0.97 per share, which is earning our $0.96 per share annual dividend. We also increased the total fair value of our portfolio at 03/31/25 to $979 million, which is up from roughly $921 million at the prior year end, though slightly lower than the $1.1 billion at the end -- that we reported at the end of last quarter. Now this slight decrease quarter-over-quarter in assets actually really resulted from a couple of positive things. One, we had an increase in assets from new buyouts that we made, but then we reduced that by the successful exit of one of our existing portfolio companies, which actually reduced -- while reducing the assets, also generated significant realized capital gains of $19.8 million. We also of course had some movement in the net valuation of our portfolio, certainly year-to-year and quarter-over-quarter, a number of which were a function of some increases in the multiple and slight decreases in EBITDA, but all of those movements were certainly all positive in some regard. During the year we did add experienced talent to our investing team, which is in support of our continuing portfolio growth and being able to help manage our current portfolio of 25 operating companies. For the year we invested a total of $221 million, which is up from $184 million in the prior year. This included investments in four new portfolio companies, some add on investments and we also completed a dividend recap, which was a positive thing of one of our portfolio companies, Educators Resource, which…

Thank you, Dave, and good morning everyone. Looking at our operating performance, we had a strong finish to the fiscal year, generating total investment income of $93.7 million, up from $87.3 million in the prior year. This increase was primarily the result of a $4.5 million increase in dividend and success fee income following the successful exits of two portfolio companies as well as a $1.8 million increase in interest income. The increase in interest income was primarily due to the increased weighted average principal balance of our interest bearing portfolio, partially offset by a decrease in the weighted average yield. Additionally, we ended the year with adjusted net investment income of $35.5 million or $0.97 per share, up slightly from $34.5 million or $1 per share in the prior fiscal year, fully covering our annual regular monthly distribution of $0.96 per share. Focusing on the fourth quarter results. We generated total investment income of $27.5 million, up from $21.4 million in the prior quarter, primarily due to an increase in dividend and success fee income, as a result of the exit of our investment in Nocturne and our recapitalization of Educators Resource as well as an increase in interest income. Net expenses for the quarter were $20.3 million, up slightly from $20.2 million in the prior quarter. This increase was primarily due to an increase in interest expense and a decrease in credits to fees from Adviser, which were driven by the significant new investment activity in the prior quarter. Additionally, base management fee expense, income incentive fees and bad debt expense increased compared to the prior quarter. These expense increases were partially offset by decrease in capital gains based incentive fees resulting from the net impact of realized and unrealized gains and losses during the quarter and accrued…

All right. Taylor, very nice. You and Dave and Michael, good information to the shareholders that you've been delivering in this call and the 10-K filed with the SEC yesterday should bring everyone up to date. The team has reported solid results for the quarter ending March 31st, 2025, including new investment activity, and significant realized gains generated during the year. We believe the team is in a great position now to continue these successes. I often ask myself, I wonder if anyone knows that there's a $0.54 dividend, that record date is June 4th, and the payment date is on June 13th. When you add that to what's being paid is the monthly, you get a great return. I believe Gladstone Investment is an attractive investment for anyone seeking continuous monthly distributions and supplemental distributions from the potential capital gains and other income that's generated by this company. Team hopes to continue to show you a strong return on your investment just like we did last year. But now let's stop and ask the operator, Donna, to let some people come in and ask us questions. We'd like all your questions, Donna?

Thank you. The floor is now open for questions. [Operator Instructions] Our first question is coming from Mickey Schleien of Ladenburg. Please go ahead.

Yes, good morning everyone. Dave, I appreciate your comments on the tariff issue, but I was hoping you could give us some sense of, on a quantitative basis, how much of your portfolio does have exposure to tariff risk?

Yes, I guess, Mickey, the correct answer is probably most of them in some regards. I mean, certainly, we have a couple of companies that currently have produced and manufacture a good part of their product in China, some of that's already being shifted, had been working on that. That's a relatively small portion actually of the portfolio that are directly affected that way. The others that could be impacted were obviously things around steel, issues like that. So I guess, again, in saying fairness, the majority of them, but frankly with the exception of one or two, none that we are, I would say, overly concerned about. Those that have that direct impact again have already started working on and had been working on advancing, obviously, product ahead of the tariffs to some degree. So there's been a buildup of inventory, which obviously affects working capital, but in a positive way before some of these prices hit. And then obviously ultimately how the supply chain as things start to hopefully unravel here over the next number of months. So long answer, but again, everyone is going to be impacted in some regard, but the ones where they're directly producing a product almost exclusively in China, those are just a few companies and we've already been taking some things to help that. And these companies are doing well regardless actually been doing very well going in the year. So I'm not overly concerned per se about those in that regard, but we have to work through being sensitive to it and alternatives.

Okay. I think I understand. Thanks for that. And Dave in the consumer sector, how much exposure does the portfolio have to lower income customers, which seems to be the group that are the weakest?

Say that again about -- what about customers?

So in the consumer sector, how much exposure does the portfolio have to lower income customers?

Lower income. I wouldn't honestly know how to answer that question. I mean when you look at the consumer type products we have, things like specialty toys products that go through people like Walmart, I wouldn't necessarily classify those as higher income or lower income per se. So I don't think we have any that I would really consider, it's not like their food stuff as an example, that would go to a let's say, again, I hate to even use expression, a much lower income type category. We don't have that kind of exposure, I would say, these are more normal type maybe some discretionary to some degree, which would affect obviously various folks. But again the movement in tariff costs to our companies that then might or might not get passed or we're not passing everything through from a dollar perspective actually on each item is actually relatively small in a sense, right? Even I know 145% tariff sounds high, especially if we go back to 40% tariff or product that we might be selling at $10 now it's going to be more like maybe $12 to $14. So it's not, again, like we're talking about items that are going to be just egregiously overpriced and therefore no one is going to take them on.

I understand. Dave, a couple of quarters ago, you were somewhat optimistic on the outlook for Hobbs going back on accrual around now. Obviously, that hasn't happened yet. I think there may have been something in the prepared remarks, but there was some background noise. So it was hard to see -- hard to hear. Could you update us on the outlook for Hobbs and maybe your other non-accruals?

Yes, so I think the comment that was made that Taylor made is that we still have four companies on non-accrual and actually three of them are all profitable, including Hobbs. Hobbs has continued to improve its profitability. We are still, yes, optimistic we're going to be able to bring them back on to accrual probably, again, things do move around a bit, but they're actually -- they're performing, I'm hopeful we might bringing them back on accrual by the end of this year. And then two of the other companies are profitable, moving in the right direction and some things are going on with those companies that, again, if not back on accrual, they're certainly not getting worse, if you will, in that regard. So, yes, I continue to be, as I say, optimistic, but overall, it's not impacting and has not impacted necessarily the results of the portfolio overall and the results that we actually have achieved in spite of that.

And Dave when you talk about profits, are you referring to EBITDA or net income or operating income? What are you referring to?

Yes, we look at generally EBITDA because that's obviously an important thing. So I look at that because that's cash flow right? Basically for these companies. And so when I refer to profitability, yes, that's obviously, gross margins improved. Overall operating income has improved, but the key thing then is obviously as we look at it in the way we -- because that's how we generate value our companies as well is through the EBITDA and how that impacts actual cash flow, which indeed is also what allows for the payment say of our interest and what have you. As we look at a company like Hobbs as it continues to improve, in fact, we even think looking at some add-on things to do with Hobbs. So fundamentally, yes, it's well managed now. It's doing really well. And I think it's going to be good over time.

So generally optimistic on the non-accruals, but on the flip side, what's going on with Horizon still marked at a fairly distressed level, doesn't seem to be going in the right direction?

No, actually, Horizon is very profitable actually, and its EBITDA, again, has continued to improve. Horizon, you may or may not recall, we actually did a dividend recap with Horizon back just about not quite two years ago, year and half or so ago and about two years ago and which was a positive event, right? And when we did that, we obviously put leverage -- more leverage on the business. We effectively had some issues around some of their customer base. Remember, they service people like Hertz et cetera, in the car rental space. We did see some drop-off in the EBITDA, relatively speaking. It's again still positive. So as a result of that, we've been working on just kind of re-doing a bit of the -- of that leverage scenario that we did when we took the dividend recap, so we can give the company the ability to continue to grow and perform as we like it. So, yes, it got hit from a market standpoint because of multiple and also again, it's EBITDA being down relatively speaking. But again, it's performing under the circumstances in pretty decent shape.

Understand. Those are all my questions, Dave. Thanks for your time this morning.

Yes, sir. Thanks.

Hey, Donna, do we have another question?

We do. [Operator Instructions] The next question is coming from Erik Zwick of Lucid Capital Markets. Please go ahead.

Thanks. Good morning, everyone. Wanted to start with just a follow-up to one of your prepared remarks where you indicated that you're cautiously optimistic for buyout activity in the current year. And wondering if you could maybe just kind of address the two components of that. One, what you're seeing that gives you some optimism. And two, what gives you a little bit of a cautious stance, whether it's more than just the current market volatility and economic uncertainty?

Sure. Thanks, Erik. Glad you are here. So the cautiously optimistic is based on the fact I mentioned in my remarks, we've got a couple that we're close to actually closing that which is a good thing. And secondly, from our standpoint, obviously, we always are looking at our, I'll call it, backlog of companies that we have in, for us, a couple of important categories are what we call initial review, where we've actually taking a look at some material, whether it's from an investment banker or other sources. We've gotten interested enough. We probably met the management talked to the management team. And we're doing our evaluations and then moving forward to the stage that we might then put together what we would call a letter of intent, which would need to get approved by our investment committee to then if that gets accepted from a valuation standpoint from the seller, move into the actual full board due diligence. So thinking about it that way, we have a couple right now that are actually in that are pretty close to being in that due diligence phase that we've received approval on moving forward and a number of others that are in that early initial review and where we've actually, where we've initiated again, what we call an indication of interest to the company in terms of what we're willing to pay. So that activity level is an important thing to look at. It's like you might call it a funnel, right? That's we feel really in good shape. And the cautious reason or the cautious optimism is the companies that we are looking at that are filling that funnel are at values because of probably some of the economic uncertainty that our values that we believe makes some…

Yes, no apology needed. That was very thorough. I was going to ask about the impact of the current market volatility on valuation and you address that as well, so thank you. Maybe moving to Educators Resource and the dividend recap there, maybe if you can just walk me through the rationale for why this is the right time and strategy, what the new capital will help them to do? And maybe a second part, just are there any other dividend recap opportunities that you see in your portfolio today?

Yes, as to the last part of the question, today, I don't see any necessarily, but we're always obviously continuing to evaluate that. Keep in mind, when we do a dividend recap, we've done a few, we've not done great many, but when we do a dividend recap, it's usually around a couple of things. One, we have a management team that has got investment in the company and it's an opportunity for them to get some liquidity. We like them, we like the basics and the fundamentals of the business. And so we collectively believe it makes sense going forward. In doing that, we then also, obviously, for us are to have the opportunity to put in a bit more capital. Usually, it's in the form of some leverage, which obviously increases the opportunity for us to generate income on that incremental, call it, debt investment at the same time that we took out some money either generated a cap gain, in the Educator side, we didn't do it where we generated a cap gain per se, but we did generate incremental income for us, dividend income, which was a positive. And specifically, in their case, the management team that when we bought the business some years ago, it was with a family team. Really, really experienced very good in this business. And frankly, it was -- we've been looking at the idea would we exit the whole company, potentially sell it. We felt that frankly the way things were going and the team, we liked it well enough that it was kind of a reinvestment decision. So we and the management team agreed to stay in to recap it. As I mentioned, they took some money off, we took some money out, and we keep going forward with the business. And, yes, that's kind of where that one stands.

Excellent. And last one for me just I think I missed it in the prepared remarks. Taylor, I think you mentioned the current spillover amount, and I neglected to write that down fast enough. Could you repeat that, please?

Sure. So we ended the year with $55.3 million of spillover, which is at the current level, $1.50 per share. So that amount covers the current run rate for the monthlies of $0.08 per share, so $0.96 and our $0.54 supplemental that we're going to pay in June.

Perfect. Thank you so much for taking my questions today.

Thanks, Erik. And just to make one point here. I know we talk about buyouts. We're not in that giant buyout game, which seems to be stalled because there's no exit for them in the public marketplace. So there's a lot of people with investments in large buyouts that don't have any liquidity. We're not in that. We put something up for sale and usually get it sold pretty quick. That's just the difference in our business versus the giant buyout business that goes on in the marketplace. Any other questions?

None at this time, sir. I would like to turn it back over to you for closing comments.

Okay. Thank you all for listening to our report. And unfortunately we don't have enough questions. We wish you guys would dream up some more questions for us to answer. We are pleased to do that and thank you so much for attending this meeting and we'll see you next quarter. That's the end of this call.

Ladies and gentlemen, thank you for your participation and interest in Gladstone Investment. This concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.